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Central Public Sector Enterprises Exchange Traded Fund (CPSE ETF), operated by Goldman Sachs Asset Management India Ltd, rose as much as 10.3 percent to 19.25 rupees on listing at the National Stock Exchange on Friday, compared with its allotment price of 17.45 rupees per unit.

The surge has been mainly driven by a recent rally in state-run stocks and value buying, dealers say.

The Indian government was seeking to raise around $500 million by selling partial stakes in 10 state-owned companies via an exchange-traded fund.

Shares of India's state entities tend to fall when the government announces a stake sale. The ETF structure makes it harder for hedge funds to anticipate disposals. It also allows India to offload stakes in less attractive companies at a similar discount to more sought-after ones.

However, institutional investors remain wary of participating in the CPSE ETF.

"It's better for institutional investors to buy individual stocks than to invest in a basket of securities," said Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance.